Conference Highlights

STEEL SUCCESS STRATEGIES XIX

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    Plaza Hotel, New York

June 21-23, 2004

World Steel Dynamics Inc.

456 Sylvan Avenue

Englewood Cliffs, New Jersey 07632

Tel:         (201) 503-0900

Fax:        (201) 503-0901

E-mail:    wsd@WorldSteelDynamics.com

Mark your calendar!

STEEL SUCCESS STRATEGIES XX

June 20-22, 2005

THE PLAZA HOTEL

NEW YORK CITY

Our preliminary theme next year is:

Steel's New Era:

Illusions, Realities and Opportunities

The information contained in this report is based upon or derived from sources that are believed to be reliable; however, no representation is made that such information is accurate or complete in all material respects, and reliance upon such information as the basis for taking any actions is neither authorized nor warranted. 

A variety of factors, including changes in prices, shifts in demand, variations in supply, international currency movements, technological developments, governmental actions and/or other factors, including our own misjudgments or mistakes, may cause the statements herein concerning present and future conditions, results and trends to be inaccurate.  World Steel Dynamics Inc. may act as a consultant to one or more of the companies mentioned in this report.

Copyright ” 2004 by World Steel Dynamics Inc., all rights reserved.

Program

Tuesday, June 22

8:35 am     Welcome: Martin Abbott, Publisher, AMM

8:45 am     Keynote Presentation: Steel: New Mettle

                  Peter F. Marcus and Karlis M. Kirsis, Managing Partners, World Steel Dynamics

9:15 am     Highlight Speaker: Ron Bloom, Special Assistant to the President, USW

10:30 am   Panel I: Steelmakers of the Americas:  Integrated Mills Taking Charge?

Moderator:      John Lichtenstein, Partner, Accenture

Panelists:         Keith Busse, President & CEO, Steel Dynamics Inc.                                                                                  

Daniel R. DiMicco, Vice Chairman, President & CEO, Nucor Corp. 

Vadim A. Makhov, Chairman, Severstal North America Inc.

Donald A. Pether, President & CEO, Dofasco Inc., Canada

David Sutherland, President & CEO, Ipsco Inc.

James L. Wainscott, President & CEO, AK Steel

12:00 noon            Luncheon Speaker:

Thomas J. Usher, Chairman and CEO, U.S. Steel Corp., introduced by Thomas C. Graham, Principal, TC Graham Associates

2:15 pm     Panel II: Global Steel: Upstream Integration the Key to Success

                  Moderator:      Ian Christmas, Secretary General, IISI

Panelists:         Bruno Bolfo, President, Duferco SA, Switzerland

Antonio Marcegaglia, CEO, Marcegaglia, Italy

Alexei Mordashov, Chairman and General Director, Severstal Group, Russia

Masato Mori, President & CEO, Nippon Steel U.S.A. Inc.

Philippe Varin, CEO, Corus, U.K.

4:00 pm     Panel III: Ocean Freight and Trade:  Whoís Sinking?

Moderator:      Peter F. Marcus, Managing Partner, World Steel Dynamics
            Panelists:         Wilfried Von B¸low, Vice Chairman, Ferrostaal Inc.

Andy James, Marketing Manager, Cargill Ocean Transportation, Switzerland

Werner Kreuz, Global Leader, Process Industry, A.T. Kearney, Germany

Jean Lemay, Senior Vice President, Fednav International Ltd., Canada

Ralph Oppenheimer, Executive Chairman, Stemcor, UK

Michael J. Ratzker, Managing Director, Global Trading, Midland Metals Intl.

Joseph E. Royce, President, TBS Shipping Services Inc. 

 

Wednesday, June 23

8:15 am                       Panel IV:         Scrap, Ore and Coke: How Long the Crisis?

                        Moderator:      Michael Marley, Editor, Secondary Materials, AMM                                                  

Panelists:         Andrew Aloe, President, Shenango Inc.

Benjamin M. Baptista Filho, Commercial Director, CST, Brazil

Donald F. Barnett, President, Economic Associates Inc.

Albert A. Cozzi, Former CEO, Metal Management Inc.

Vladimir V. Katunin, General Director, Chermet Informatsia, Russia

9:30 am                       Keynote Presentation:  The Outlook for the Chinese Economy

                        Nicholas Lardy, Senior Fellow, Institute for International Economics

10:45 am         Panel V:          China Dominating; India Aspiring

                                    Moderator:      Peter F. Marcus, Managing Partner, World Steel Dynamics
                        Panelists:         Liu Jinghai, Director, Chinese Research, World Steel Dynamics

Nicholas Lardy, Senior Fellow, Institute for International Economics

B. Muthuraman , Managing Director, Tata Iron & Steel, India

Prashant Ruia, Managing Director, Essar Steel Ltd., India

Zhang Xianshan, Chief Director, Strategy Mngmt Dept. Baosteel, China

Patrick C.P. Tuen, Managing Director, Midland Resources, China

12:15 pm         Luncheon Speaker:

                        Martin Wolf, Chief Economics Commentator, Financial Times, U.K.

2:00 pm           Panel VI: Wall Street Darlings are Back!

                        Moderator:      Rodney Mott, President and CEO, International Steel Group

                        Panelists:         Peter Hickson , Managing Director, Basic Materials Strategist, UBS UK

Dieter Hoeppli , Executive Director, UBS Securities

Glenn R. Tilles, Managing Director Investment Banking, Lehman Bros.

James S. Tumulty, Managing Director, Morgan Joseph & Co.                        

3:15 pm           Panel VII: Technology to the Rescue

Moderator:     Peter F. Marcus, Managing Partner, World Steel Dynamics
            Panelists:         Gianpietro Benedetti, Chairman & CEO, Danieli & C. SpA, Italy

Shohei Manabe, General Manager, Iron Unit Div., Kobe Steel, Japan

Dieter Rosenthal, Member of the Mng Board, SMS Demag, Germany

Karl Schwaha, Member of the Board, Voest-Alpine Ind., Austria

Richard L. Wechsler, President, Castrip LLC

Steel Success Strategies XIX

The Age of Metallics

The conference this year set a record attendance mark, surpassing 1,000 delegates for the first time in its 19-year history.  Last year at this time, World Steel Dynamics forecast positive world steel consumption, as well as the 2004 global steel shortage and raw materials tightness.  It happened.  Indeed, shortage conditions in the industry, mills hooked on profits, buyers trying to line up adequate supply, historically high steel product prices, raw material supply concerns and lofty prices, all set the stage for an active audience participation in the question and answer portion of the panels.  We sensed a combination of exhilaration from the mills, trepidation from steel buyers, and caution from some economic theorists.  The steel industry is clearly exhibiting new ìmettleî as described by World Steel Dynamics in its presentation.

Keynote and luncheon speakers in a nutshell:

• Ron Bloom, special assistant to the president of the USW, listed ì8 simple rulesî for dealing with the United Steelworkers union, and emphasized that the eight rules were vital to developing a strong relationship with the USW, but not necessarily a model for success.  That model has three key factors:  creating a competitive cost structure for North American steelmakers; a stable, consolidated industry, and political support from the US government for the steel industry.  ìConsolidation,î said Bloom, ìis very important.  There are not too many steel mills—there are too many steel companies.î

• Thomas J. Usher, chairman & CEO, U.S. Steel Corp., who was introduced by Thomas C. Graham, Principal, TC Graham Associates, noted that the United States is seeing a recovery across a broad base, there is newly emerging strength in the European Union economy, and China is still growing, so steel demand is strong.  Coupled with tight supply, if these conditions remain, pricing should stay strong.  Usher also condoned the USA steel industryís use of trade cases to defend it against unfairly traded imports.  A member of the audience noted in a question that US trade laws did not prevent the import surge of 1998, to which Usher commented that a permanent and expanded import monitoring and licensing system could be employed to move on potentially damaging imports in advance if their arrival.   ìThe trade laws are not perfect,î Usher said. ìYou have to be damaged first before you can use them.  But to have trade, we need rules and information and we need to continue to enforce the rules.î

• Nicholas R. Lardy, senior fellow, Institute for International Economics, believes that China may not be able to sustain its torrid growth rate much longer.  The issue, he noted, is whether a slowdown is already under way, or will begin later and from an even higher point.  Chinaís economy grew more than 10% last year and that growth rate continued through 1Q 04, but fixed-asset investment has declined to about 18% from 55% earlier

  this year.  He warned that steel is among the industries that could be negatively affected from a slowdown.  Lardy added that gross domestic investment in China was running at an ìunsustainableî 47%. 

• Martin Wolf, chief economics commentator, Financial Times, United Kingdom, made a persuasive argument that sooner or later, the US dollar would decline considerably in value—about 20% or more.  He noted that, because of its massive trade deficit, which is running at about 5% of gross domestic product (GDP), the USA economy was a strong factor stimulating the global economy—especially the economies of the Pacific Basin.  Because the trade deficit is such a positive for certain countries—and in particular the Chinese economy—Chinese policymakers are more than happy to continue to amass US treasury bonds (about $500 billion currently), on which the interest rate is about 2.5% per year.

If you enjoyed New York's Conference in June, you will love the Paris Program in December!

STEEL SUCCESS STRATEGIES EUROPE

December 1-3, 2004

Crisis or Crescendo

Will Steelmakers' Metallics Dance to the Same Song in 2005?

Le Grand Intercontinental Hotel

Paris, France

For registration information  —

Tel:  +44 (0) 207 827 9977    Fax: +44 (0) 207 827 5292

Email: enquiries@metalbulletin.com        Online: www.metalbulletin.com

Steel Success Strategies XIX

The Age of Metallics

Session Highlights

Tuesday, June 22, 2004

Keynote Presentation: Steel: New Mettle

For an audience of more than 1,000 industry executives from around the world, Peter F. Marcus and Karlis M. Kirsis, managing partners of World Steel Dynamics Inc., Englewood Cliffs, N.J., provided a largely positive outlook (from the perspective of the steel mills), saying there is growing evidence that the global steel industry is entering a more prosperous era.  They emphasized that the use of the word ëmettleí in their remarks was not spelled m-e-t-a-l, but rather m-e-t-t-l-e, which means vigor and strength of spirit or temperament, as well as staying quality, stamina and persistence.  The ìmettleî of steel companies has been tested in the past decade due to the increasingly competitive environment.  Consolidation has resulted in strong, powerful winners while many weaker players have been weeded out.

The managing partners broke down key developments, trends, analyses and forecasts into four groups of 10 points.  They began by pointing to 10 ìgrowth-industryî characteristics that steel now shares with more youthful industries:

1. New developments occur at an astonishing pace. 
2. An ongoing technological revolution. 
3. Major product price swings.  Price competition promotes change. 
4. Steel prices are down on an inflation-adjusted basis.   
5. Global-ness.  About 30% of steel products go across an international border. 
6. Major improvements in product quality.  The steel industry has enjoyed huge gains in the construction market and has retained its dominance in the automotive sector.
7. Good demand growth.  Global steel demand has grown every year, but one, since 1993.
8. The Chinese industry plays a critical role.  In steel, China is ìdriving the bus.î
9. A fluid industrial structure.  Mergers, acquisitions, restructurings and bankruptcies have been occurring at a furious pace. 
10. Proactive management. 

Asking ìWho would have imagined thatÖ?î the WSD managing partners also rattled off 10 industry conditions in June of 2004 that would be unrecognizable in many respects from the ones observed just a year ago: 

1. The most widespread shortage of steelmakersí raw materials in the steel industryís history.  It occurred in late 2003.
2. The incredible surge in steel scrap prices in early 2004 and, then, the collapse. 
3. The immense rise in the Chinese coke export price.
4. The surge in the USA coking coal price.    
5. The explosion of ocean freight rates. 
6. The collapse in the Chinese domestic hot-rolled band price starting in early May 2004.  
7. Steel prices have multiplied like rabbits!  And, the variations in price are extraordinary.  In fact, there are so many prices that no one really knows the market price. 
8. Many Chinese steel mills have lost their access to cheap domestic raw materials.  Many Chinese steel mills can no longer be counted among the lowest cost steel producers in the world. 
9. Profits have surged to an amazing extent for ìsteel goodsî companies. 
10. Seasonally adjusted and annualized global steel output in May 2004, at 1.013 billion tonnes, was flat with the figures for November and December of 2003 despite the steel product price surge over this period.  ìItís really quite unbelievable that, after the explosion of steel prices, there has been no production response,î said Marcus.

With 2004 almost half over, key developments and themes are becoming evident.  Kirsis and Marcus put forth 10 forecasts for this year:

1.         The world hot-rolled band export price declines only moderately, if at all, in the summer of 2004.

2.         An oversupply of steel sheet products does not develop in China in the second half of the year. 

3.         Non-Chinese steel production this year increases by just 27 million tonnes – or 3.5% - to about 775 million tonnes.     

4.         Chinese steel production in 2004 rises sharply, although perhaps less than our recent expectations in view of the decline in May. 

5.         Steel sheet markets in the USA and Western Europe remain tight well into the third quarter.   

6.         Steel scrap prices, when they next recover, may not rally as sharply as earlier this year.  WSD believes that the huge steel scrap price spike in late 2003 and early 2004 was a non-recurring event caused by excess speculation. 

7.         The U.S. dollar strengthens versus the Euro in the second half of the year. 

8.         Insufficient availability of Chinese coke on the world export market will restrain steel production for all of 2004.

9.         Steel millsí production costs probably peaked in the spring of 2004.  WSDís just-completed World Cost Curve for Steel Sheet Mills for 2004 showed that for April 2004 versus May 2003, liquid steel costs for integrated plants rose $51 per tonne.  For EAF-based plants, liquid steel costs incurred an $88 per tonne increase.

  10.         Steel millsí profits will continue to surge in the second half of 2004 – with the principal exception being China. 

Marcus and Kirsis also expect that the ìindustrial structureî of the industry will evolve in a way that will be beneficial to many steel sheet-producing mills in the remainder of this decade.  They presented 10 more items of forces that may shape the industry in the future:

     1.         Steel mills have learned how to make profits once again.  The steps needed to make money can become a habit-forming trait. 

     2.         Non-Chinese steel demand growth will be sufficient for those steel mills currently exporting huge quantities of steel to China to find other outlets for their product. 

     3.         The supply of steelmakersí metallics will not be adequate except when demand is weak.  Additions to blast furnace and cokemaking capacity outside of China will not be sufficient when considering the growing demand for steelmakersí metallics in strong markets.  

     4.         The CIS steel millsí threat to steelmakers elsewhere will be dissipated by rising demand in the CIS and a strong currency. 

     5.         Further consolidation of steel producers outside of China will permit home-market steel prices to be sustained at better levels over the cycle. 

     6.         Cost reduction efforts will remain intense.  The spike in the steel millsí costs in 2004 will be fully reversed by 2007.

     7.         The Chinese steel industryís steel sheet oversupply problem, when it develops - probably in 2005, will remain largely encapsulated in the country. 

     8.         Steelís technological revolution will continue to spin off new opportunities for those who can capture the benefits. 

     9.         Additions to steelmaking capacity outside of China will be moderate because of shortages of capital and many mis-located weaker mills that cannot sustain their capacity. 

  10.         Winning steel companies – including WSDís list of ìworld-class steelmakersî – will grow stronger.  Losing steel mills will be unable cope with sharply swinging prices for steel on the world market, old and poorly located equipment, weak balance sheets and stronger competitors. 

Because ìcatch-upî is so difficult to achieve, the managing partners summarized, ìlosers will seek to sell out to their stronger competitors.î

Highlight Speaker: Ron Bloom, special assistant to the president, United Steelworkers (USW)

Ron Bloom, special assistant to the president of the USW, listed ì8 simple rulesî for dealing with the United Steelworkers union:

1.         Management teams that do not respect the union cannot expect it in return.

2.         There must be a mutual understanding of management and union missions.

3.         The union will not accept companies competing by cutting hourly rates.  That approach only works until everyone ratchets wages down.

4.         ìThese mills are ours,î he said.  Shareholders come and go, but the workers have the largest vested interest.

5.         The union can forgive, but never forget.  And with the union, itís always personal, because the union is in the ìperson business.î

6.         ìWith us, you get what you deserve.î

7.         The union has considerable negative power, but rarely has had positive power.  Thatís changing somewhat, as the union is now aligning itself with credit providers and other steel industry constituents to maximize its positive power.

8.         The USW represents workers, not consumers.

Bloom noted that the eight rules were vital to developing a strong relationship with the USW, but not necessarily a model for success.  That model has three key factors:  creating a competitive cost structure for North American steelmakers; a stable, consolidated industry, and political support from the US government for the steel industry.  "Consolidation," said Bloom, "is very important.  There are not too many steel mills—there are too many steel companies."

A smaller, more financially sound North American steel industry would be among the most competitive in the world, according to Bloom, and union members would play a critical role in keeping it that way.  ìItís common to believe that if there is no steel industry, there will be no union,î he noted.  ìBut the fact is that if there is no union, there will be no steel industry.î

Panel I:  Steelmakers of the Americas:  Integrated Mills Taking Charge?

In responding to the question above as the subject of this first panel, minimill executives agreed that their integrated counterparts have not quite taken charge totally, in terms of cost advantage.  Integrated steelmakers, nevertheless, said they were well on their way to doing just that.

Daniel R. DiMicco, vice chairman, president and chief executive officer of Nucor Corp., Charlotte, remarked that news of the demise of the minimills is greatly exaggerated.  ìStrong competition will make the best EF (electric furnace) producers better,î DiMicco said.  ìWe not only welcome (strong competition from the integrated sector), we survive and thrive on it.î

Keith Busse, president and chief executive officer of Steel Dynamics Inc. (SDI), Fort Wayne, Ind., maintained that the answer largely depends on the costs of raw materials.  ìThe likely cost structure for most integrateds is around $300 per ton,î he said.  ìFor minimills, with scrap at $150 per ton and conversion costs at $100 per ton, youíve got costs of $250 per ton.î  He emphasized that when coke prices go higher—as they are now—that spread widens in favor of the minimills.  Busse added that SDI operated at a level of about 0.25 manhours per ton while the best of the integrated mills were still between 1.5 to 2 manhours per ton.  ìThis is where we have a decided edge,î he said.

Busse and DiMicco agreed that their low labor costs, corporate cultures and willingness to take risks in developing breakthrough technology would keep minimills on the cutting edge of steelmaking.

Vadim A. Makhov, chairman, Severstal North America Inc., participated in his first panel as a North American integrated mill executive because his Russian steelmaking parent company had purchased Rouge Steel of Dearborn, Michigan in January of 2004.  ìWe came here because it was part of our vision to become a global company,î Makhov said.  He said the new management team is working to increase output and make the mill more efficient.  About $40 million is being spent to upgrade the facility and Severstal NAís team are aiming to enter into long-term supply agreements with North American carmakers, as well as to diversify into non-automotive markets.  Makhov added that ìthe automotive market in the US is very attractive to us.  We believe that a strong position in the US market makes us a leader in the automotive market in Russia.  We want to have a strong presence in the automotive market.î

Donald A. Pether, president and chief executive officer, Dofasco Inc., Hamilton, Ontario, Canada, contended the integrated vs. minimill question should be argued in a larger context, one that evaluates the scope of change in the competitiveness of North American integrated steel mills.  Rapidly escalating scrap costs added to the minimill cost structure, while at the same time integrated mills consolidated and shed burdensome legacy costs.  Integrated mills were also ìworking smarter,î with reconfigured work rules and job classifications.

David Sutherland, president and chief executive officer of Ipsco Inc., Lisle, IL stated that the key issue is not really integrated versus minimills.  ìThe plate industry has rationalized to the point where the top three producers now represent 70 percent of North American capacity,î he noted. ìTwo of those three are minimills.î   Sutherland commented that one area where plate minimills appeared to have a distinct edge was in the realm of raw materials surcharges.  He said Ipsco had no surcharge in June and Nucor had a $23 per ton surcharge, while ISG had a June surcharge on plate of $100 per ton.

James L. Wainscott, president and CEO, AK Steel, Middletown, OH, stated that AK is on its way back.  ìWe are trying to return to operating profitability.  We are not yet where we are accustomed to being and weíre not where we want to be.  But the good news is, we are not where we were nine months ago either,î he reported.  It was, in fact, a homecoming of sorts for AK Steel, which did not have participation by an AK Steel executive on a panel session in about 10 years.  Wainscott promised that the company would not turn its back on its retirees and planned to maintain benefits for them even though costs were high.  He pointed out that other steel companies have shed many of those legacy costs via bankruptcy, giving them a competitive advantage over AK Steel.  ìThe question is how do we pay for those (legacy) costs going forward?  Wainscott asked.  The company will work to reduce it workforce in the future as a means of becoming more competitive.

Busse may have summarized the session best when noting that while the battles between integrated and minimills were as fierce as ever, all North American steelmakers were enjoying the riches of a robust market.  ìThis is going to be an unbelievable year for everybody,î Busse said, quick to acknowledge that SDI may post a record $2 billion in revenue this year.  ìI think we are all going to do well.î

Luncheon Speaker: Thomas J. Usher, chairman and chief executive officer, U.S. Steel Corp.

(Note:  Mr. Usher was introduced by Thomas C. Graham, principal of TC Graham Associates.  The remarks that follow are excerpted from his speech.)

Ö what I want to talk about today, is true market "competition" – what we mean by it, why it matters, and, most importantly, the rules we put in place to make it work.  Perhaps the most important lesson from the '"boom and bust" cycles we have seen is the absolute vital importance of trade based on rules – principles that offer a measure of predictability in the face of chaos, a basis for rational expectations among businesses taking billion-dollar risks, and a sense of fair play that is critical to building support for open markets and expanded trade.

It is of course commonplace to say that "competition" is essential to a market system, that it weeds out the inefficient and rewards the productive.  But we tend to focus less on the equally basic point that there can be no real competition – whether in sports, or business, or elsewhere – without rules that define it.  Tiger Woods is the number one golfer in the world, but he wouldn't be if his competitors took as many gimmes and mulligans as some of us in this room.  (You know who you are.)  In the business world, of course, the rules not only tell us who's best, but are instrumental in ensuring that the benefits of a market actually come about – that we all share in the gains from tradeÖ

            ÖIronically, the last and arguably gravest crisis in the industry really did serve as a wake-up call.  Faced with the collapse of many of its producers and prices that literally bore no relationship to economic reality, the United States took its much-maligned safeguard action – a move that was in my view not only justified by the facts and the law, but extremely successful.  It fostered critical restructuring at home and abroad, and – for the first time in decades – led to serious international discussion of the fundamental problems facing the industry.

The OECD steel subsidy negotiations, one of the fruits of the U.S. safeguard action, offer a remarkable paradox.  On the one hand, virtually all the participants have recognized – as a theoretical matter – the harm caused by government subsidies and the need for stronger rules to stop them.  At the same time, as a practical matter, the thirst for government aid seems if anything greater than ever – with any number of parties requesting fundamental loopholes and exclusions for new aid, and even attempting to undermine existing trade rules.

The sought-after exemptions cover the widest range of government support, including:

∑      Government backed loans;

∑      Tax rebates;

∑      Environmental and energy aid;

∑      Plant modernization and technology upgrades;

∑      Blanket exemptions for developing countries.

And the list goes on.  Each of us may believe that the aid projects we would benefit from have a sound and unique policy rationale – but in the end, they all just amount to normal costs of doing business.

While no one has tried to add it up, it is certain that the new aid being contemplated would encompass many, many billions of dollars.  I cannot emphasize too strongly the

importance that the industry not go back down this well-trodden path – one that can only lead to litigation, crisis, and financial losses.

The truth is that the formula for success in these negotiations has been apparent from the outset.  We need mutual disarmament – something that is proving just as hard to achieve here as in the political world.  The message to all of the participants should be simple:  Step away from the cookie jar.

Although now may not be the time, we should not give up on the possibility of a subsidy agreement down the road.  More importantly, we cannot give up on the idea behind these negotiations – that if we want to see long-term health and stability in this industry, governments must retire from the steel business.

After four decades in this industry, I have no illusions about how difficult it will be to end government intervention.  True market competition – like any fair competition – will inevitably produce winners and losers.  Companies who fear that they cannot succeed under the same rules as everyone else will always be tempted to ask their national governments to bend the rules in their favorÖ

ÖI am troubled, therefore, that at the same time the OECD talks have publicly recognized the need to strengthen rules on market-distorting behavior, many countries are engaged in an all-out assault on the rules we already have – particularly antidumping and countervailing duty rules.  We see this attack in the new WTO trade round, FTAA negotiations, WTO litigation, and in the OECD talks themselves.  I know that many people in this room don't like AD and CVD remedies.  Are these laws perfect?  Of course not.  Given the enormous complexity of the issues involved, it is hard to conceive of any system that could be.  The point is that they are far preferable to the alternative for any number of reasons.

First, these rules are the only transparent means we have to deter market-distorting practices.  There has to be a cost to those who would cheat – a way to remove the perceived economic advantage of subsidies and closed markets.  Existing trade laws are the only game in town, and the only proven remedy, to deter such practices.

Second, the strongest defenders and users of the laws have the most open markets in the world.  That is no coincidence.  As countries move away from non-transparent and highly pernicious trade barriers, they have traditionally resorted to WTO-consistent trade remedies to address unfair import surges – something that has proven wholly compatible with a flourishing import trade.

Third, support for open markets vitally depends on a sense of fair play.  What critics of these laws have consistently misunderstood is that support for free trade and the global system will disappear overnight in the absence of rules to ensure a level playing field – where domestic workers and companies can compete against market-based production, not foreign governments and treasuries.

 

Panel II:  Global Steel: Upstream Integration the Key to Success

Bruno Bolfo, president, Duferco SA, Switzerland, shared wide-ranging views on the steel industry.  He pointed out that the raw materials situation in 2004 was a new worry.  It was a problem that did not exist for the past 20 years.  During this period, independent transformers enjoyed plentiful supply. China, India and Vietnam are in an aggressive expansion.  One factor in Chinaís growth is that workers work 3000 hours per year at wages of $0.60- $1.00 per hour.

India has political questions.  At the moment it is not a major steel consumer, but the per capita consumption is very low.  Prices are at record highs, but now raw materials prices are declining.  Is this a sign of a structural squeeze? 

More companies are trying to control their raw material situations.  Two Russian companies have recently purchased iron ore suppliers and North American companies have the possibility of long-term arrangements.  However, with 75% of the iron ore supply controlled by just 3 companies, there could be more oligopolistic pricing.  Next yearís price negotiations will tell.

Antonio Marcegaglia, chief executive officer, Marcegaglia, SpA of Italy, said that as a non-integrated producer involved in first and second transformations, there are different opportunities and risks in different parts of the cycle.  His company has been a success case that has relied on open market sourcing for their raw material – coil.  The recent market has caused the company to perhaps rethink this strategy.

The lack of basic inputs has resulted in very high prices.  There is more competition in the downstream markets.  There is now a 20-30% difference between spot and contract prices.

Previously, overcapacity of hot-rolled coils gave Marcegaglia top flexibility.  Now, the open market has become more global.  They have made more long-term arrangements and are considering joint ventures. ìValue added products do not assure value at the bottom line,î said Marcegaglia.  He added there should be a division of work that maximizes each playerís strength with a consideration of logistics.

Alexei A. Mordashov, chairman and general director of Severstal Group in Russia, described the consolidation taking place in the Russian steel industry.  The six largest firms now account for 88% of production.  Most of the companies are vertically integrated.  Out of 85 million tonnes of iron ore production, 65 million is controlled by the mills.  Magnitogorsk is the only one without its own ore supply.  They import from Kazakhstan.  In coal, Mechel and Severstal are self-sufficient and Evraz is nearly self-sufficient.

The Russian mills are currently enjoying growing domestic markets and financial stability.  Most mills plan to invest in their own operations and Mordashov predicted there will be more investment in consolidation and acquisitions within Russia and elsewhere.  He cited Severstalís acquisition of Rouge Steel in the US and Evrazís bid for Hanbo.  He also said that Severstal and Evraz would be making more investments in iron ore properties to be fully self-sufficient.  Since

there are not many acquisition opportunities left within Russia, he sees more global involvement in both upstream and downstream businesses by the Russian mills.

Masato Mori, president and chief executive officer, Nippon Steel USA Inc., said that last year saw considerable change in the makeup of the worldís largest players, resulting from a wave of industry consolidation.

ìIn keeping with the progress of economic globalization,î Mori noted, ìmany Japanese auto companies and appliance makers established their production abroad.  And in response to their request to supply them with high quality, flat-rolled steel, Nippon Steel has established joint ventures with leading partners.î  Those partners include Ispat Inland, Inc., East Chicago, IN, which operates two steel coating ventures with Nippon Steel.

Philippe Varin, chief executive officer, Corus Group, noted that the upstream businesses in the steel industry are now enjoying high EBITDA, such as the iron ore suppliers.  He sees upstream integration as one key to success.  He said the changing of patterns in the industry is good news.  Three key items he mentioned were: 1) the severe supply/demand imbalance that occurred in early 2004, 2) the consolidation that has occurred and will continue to accelerate and 3) more rational behavior among steelmakers.

Structural advantages for Corus include its BF/BOF steelmaking route, the good coastal locations of the mills, and exposure to the construction market which is a non-fixed price market.  He noted that there is room for improvement at Corus since there was a 6% gap in profitability between it and its European peers.  One of the ways it is controlling costs is with a recent 10-year contract with CVRD. 

In the Q&AÖ Varin said that Corus would not be a big player in the slab market and is looking for partners in its Teesside slab operation.  He did not feel this was a way to create more value for shareholders.  Marcegaglia pointed out that downstream operations should be operated as separate profit centers.  He stressed that there should be a reason to be in a market, not just to add volume.  Mordashov said that Severstal was looking at the possibility of producing coke for export.

Varin also responded to a request to compare the steel industry with the aluminum industry.  He said that there was a similar trend to relocate downstream operations to low-cost countries.  He said the pace is different with steel since an aluminum smelter has a fixed life span, whereas a BF lifespan is more uncertain.  Also, aluminum ingot is a more simple product to produce, and the weight differential between the two metals makes logistic considerations different.

Panel III:  Ocean Freight and Trade:  Whoís Sinking?

Wilfried von Bulow, vice chairman of Ferrostaal discussed the freight rate frenzy and some of the factors contributing to it.  Besides demand from China, which is responsible for half the trade in cement, one-third of the trade in steel, etc., as well as being the second largest oil importer, factors include Japan becoming a huge importer of steam coal as their nuclear energy plants shut down, growing world trade, and lower ship output in 2003.  Due to the problems at Chinaís ports, where it can take 3-4 weeks to unload a vessel, 20-25% of the shipping fleet is unavailable at any given time.  He predicted this condition could continue for 2-5 years, or until the 2008 Olympics in China.  This is because the shipbuilding capacity is maxed out for 5 years.

His outlook was for strong world trade with a lower value of the US dollar.  The only risks on the horizon were highly unlikely, such as another outbreak of the SARS virus or some crisis in Iraq or the Mideast.  He forecast that freight rates would flatten out this fall and winter, but there would be no return to year-ago levels.

Andy James, marketing manager of Cargill Ocean Transportation, Switzerland, discussed the explosion and collapse of freight rates in 2004.  Rates rose far above the ìnormalî level in early 2004.  For the past 10 years, freight rates between Brazil and Europe averaged about $6 per tonne and were always in the $3-10 per tonne range.  In January 2004, this rate hit $26 per tonne.  It has since fallen back to $10 per tonne.

He cited reasons for the explosion in rates such as strong Chinese demand for steel and soy beans, the EU drought last year, and port congestion in China (with 30 mt deadweight tied up).  China is still the driver of freight prices and whether it has a hard or soft landing will be key.  There has been an easing of supply chains globally.

On one hand, the fleet is increasing 5% in 2004 and 4% in 2005.  On the other hand, European mills are destocking coal and may need more.  Also, the Japanese need to source more coal from Australia rather than China which is 4 times the distance.

Werner Kreuz, global leader, A.T. Kearney of Germany, discussed a survey done by their company.  It found that the steel companies were under-performers in terms of value and revenue growth.  The raw materials and shipping companies were the best performers, being in the value growth quadrant.  He noted that outsourcing makes sense for accounting and personnel functions, that steel is in the third stage of its consolidation, and he predicted that a Chinese mill could acquire a European or US company.

The ocean carrier market is not sinking, according to Kreuz  The bulk carrier market is the purest example of supply and demand, he said noting that in the summer of 2003, freight rates were at a fair level and should return to this level.  By 2008, it will depend on the productivity of Chinese shipbuilding.  They have the capacity to supply two-thirds of the worldís need.

Jean Lemay, senior vice president, Fednav International of Canada, said the bubble had not burst for shipping companies and strong shipping volumes were expected to continue for another two years.  China would continue to drive shipping in the years ahead.

Ralph Oppenheimer, executive chairman, Stemcor of the UK, noted the important functions that traders perform that have permitted them to survive the threat from the Internet.  These include taking on some of the risks involved in international trade such as financial risk and freight rate risk.  He mentioned that some traders were forced to renegotiate rates or ask for surcharges earlier this year.  However, he said that reputable traders should be able to accept losses if trades go wrong.  He discussed some ways that traders could manage their risks such as time-chartering or purchasing vessels, contracting with an operator or hedging by buying freight futures.

Michael Ratzker, managing director, Midland Metals described how the Ukrainian mill, Zaporizhstal, could become a major exporter even though it is a mill with open hearth steelmaking and no continuous casting.  Midland is the agent for Zaporizhstal.  He noted that Midland Metals did not start selling directly into China until 1998.  They had previously thought it was too unreliable.  Zaporizhstal does not make very high quality product (4-10 tonne coils, no continuous casting).  But they were able to make a few minor quality improvements and became a big supplier to China.  Their prices are now close to Tier I suppliers.

Midland Metals, according to Ratzker, has gained much experience in dealing with the governmental policies, documentation requirements, and the ìdifferentî banking rules.  They have all Chinese sales representatives.  The company also exports Chinese steel to the U.S.

Joseph E. Royce, president, TBS Shipping Services discussed reasons for the recent behavior of freight rates.  Reasons for the strengthening that began in August 2002  included weather factors, the timing of Ukrainian and Argentine grain shipments, Japanís increased steam coal demand, low interest rates and demand from China and India.  The factor which caused rates to explode was the port congestion in China.  Demurrage charges at $1.00 per tonne per day began to exceed the price of the commodity.  Freight rates began to drop when the Chinese government announced efforts to slow down the economy.  This was a psychological factor.

In the future, rates will be affected by trade with India and China, Russia joining the WTO, and more coal needed globally as populations increase.  The wild card factor is port congestion.  In the future there needs to be more port investment after decades of neglect.

Wednesday, June 23, 2004

Panel IV:  Scrap, Ore and Coke:  How Long the Crisis?

Andrew Aloe, president, Shenango Inc., Pittsburgh, forecast that the United States could face a coke shortfall of more than 3.5 million tons in 2005.  He noted that domestic mills, which may have sold any excess coke production, were likely to pull their commercial coke supply off the market next year.  He noted that if buyers were aiming to address shortages by increasing their imports, the logistical challenges of bringing in large quantities of coke from overseas meant it needed to be done right away.  On the other hand, Aloe sees the potential for relief in 2006 and thereafter, given the construction of new coke batteries and the rebuilding of existing ovens in a number of countries.

Michael Marley, AMMís secondary materials editor, who also doubled as the panelís moderator, said autobundles at one point this year reached $350 per ton delivered to some steel mills—twice the level they reached 30 years ago when prices shot up after the Nixon administration lifted wage and price controls.

Donald F. Barnett, president, Economic Associates Inc., detailed the huge increases in metallics prices this year: Iron ore +33%; low grade metallics 40-50%; high grade metallics 50-60%; coke 60%+.  He asked: Why?  What caused this increase?  Were steelmakers generous?  Were the markets competitive?  His answer was that it actually comes down to a more fundamental issue—that there is an underlying imbalance between shippable steel capacity and the metallics to support it. 

Remarks from Vladimir V. Katunin, general director of Chermet Informatsia of Moscow, were interpreted by his deputy director, Alexander Ovchinnikov.  He said the countryís obsolete scrap collection during the first four months of the year was four times greater than usual, meaning that it could reach 27 million tonnes in 2004 on an annualized—only 50% of which is needed in the Russian market.

Albert A. Cozzi, former chief executive officer of Metal Management Inc. Chicago described current scrap prices as ìunsustainable,î although he conceded that it was impossible to predict when that might decline again.  He does not recommend, however, USA scrap export controls, which were last attempted in the 1970s.  Cozzi pointed out that the mere suggestion of controls earlier this year ìprobably added fuel to the fire,î and helped boost prices.

Benjamin M. Baptista Filho, commercial director, CST, Brazil, noted that while $450 per tonne for slab (FOB the port of export) may have been a good pricing estimate in early June, high-end spot quotes at $500 per tonne were now more the norm.  ìIf American mills can continue to sell hot band for $700 (per tonne), then $500 for slabs is a bargain price,î he said.  Baptista added that global slab capacity should be in place to support a worldwide annual merchant market of 40 million tonnes by 2010 compared with current demand of about 25 million tonnes per year.

Keynote Presentation:  The Outlook for the Chinese Economy—Nicholas Lardy, Senior Fellow, Institute for International Economics

Washington DC-based, Nicholas Lardy discussed whether China will experience a hard or soft landing.  He noted that recent government actions have begun to have an effect on the economy in slower monetary growth and slower growth in fixed asset investment, but that more tightening is needed.  This could result in a painful adjustment for some sectors.

Investment as a share of GDP reached a peak of 47% in mid-2003, the highest for any country ever.  This compares to a sustainable rate of 38-40%.  He noted that the previous peak was 43% in 1993 and it took 6 years to correct by 5 percentage points.  Now it needs to come down by 9 percentage points; therefore the decline will need to be sharper or take more years.

In the previous down cycle in China, steel demand declined by 15%.  It took until 1999 to recover to the level it was in 1993.  He forecast that long product demand would soften considerably and that there was a great deal of excess capacity in this sector.

Investment in the steel industry has been massive:  $5.8 billion in 2001, $8.5 billion in 2002, $16 billion in 2003, and $5.8 billion in the first four months of 2004.

There are signs that the economy has started to turn:  declining rate of growth in steel imports, a decline in scrap imports, freight rates are declining, iron ore prices are declining and prices of long products have dropped.

A soft landing would be GDP growth of 6%.  But for steel, this would mean an absolute reduction in ASC which would be more painful and take many years to reach the same level.

In the Q&A, Lardy described how a banking crisis could be precipitated by the massive level of lending.  In this situation, bad investment decisions are made on more marginal projects.  Profitability will quickly erode in a downturn.

He mentioned that the RMB will not be able to float for at least 2 years.  In the short to mid-term, the RMB could be re-pegged.  It should be revalued by 5-10%.  This will make exports more expensive and imports cheaper, stimulating demand.

 

Panel V:  China Dominating; India Aspiring

B. Muthuraman, managing director, Tata Iron & Steel, India, stated that India is likely to be the next China in terms of steel market growth—but it will be at a much steadier pace than Chinaís ìfrenziedî ascent.  Since 1991, steel consumption growth in India has averaged 5.5% annually, but it grew 7% last year, and Muthuraman forecasts 8% growth in steel demand in 2004.  He added that about 3 million tonnes per year of additional capacity is ramping up each year.  Muthuraman said that 2008 will mark Tata Steelís 100^th anniversary and the plan is to have 14 million tonnes of capacity by 2010.

Zhang Xianshan, chief director, Strategy Management Dept., BaoSteel, China, speaking through his interpreter, Ms. He Wei from BaoSteelís Information Dept., emphasized that his company aims to optimize its product portfolio while expanding capacity only ìmoderately.î  A key goal is to develop value-added products to meet the demands of Chinaís rapid economic growth.  BaoSteel hopes to accelerate consolidation of its steel business within the group, to implement an integrated management system, and ultimately to ìestablish BaoSteel as a respectable, world-recognized multinational company listed in the Fortune 500.î  In the Chinese home market, BaoSteel claims to have 45% of the auto sheet market, 53% of the appliance market, and 30% of the galvanized market.

Prashant Ruia, managing director, Essar Steel, India, noted that by 2010, China and India will together account for 40% of total global steel consumption.  Nonetheless, he acknowledged that in terms of steel consumed on a per capita basis, both nations have a long way to go.  The worldwide average is 140kg of steel consumed per capita, but in Indiaís case it is now only 30kg per capita.

Ruia added that both India and China have followed similar development models—deregulation, openness to foreign trade and investment, permitting competition, and so on.  He pointed out, however, that India started such development initiatives in 1991, whereas China began in 1978. 

Be that as it may, India today has the worldís 4^th largest economy at US$ 3 trillion GDP after the USA, China and Japan.  Several inherent strengths make the Indian steel industry competitive; these include iron ore, energy and fuel, manpower and management, according to Ruia.  Future plans at Essar include expanding operations to 7.5-10 million tonnes per year by 2010.

Patrick Chi Pak Tuen, managing director, Midland Resources, China, a player in the steel trading business, conceded that China ìis not an easy place to do business, but it simply cannot be ignored.î  He figured that steel capacity even at 360 million tonnes in the future might not be enough.  He recalled the story that when the Central Government mandated import licenses to begin bringing steel into China, the traders actually started trading the import licenses themselves (as opposed to steel product).  ìThe Chinese government is clearly forceful,î said Tuen, ìbut the Chinese people are very creative.î

Liu Jinghai, director, Chinese Research, World Steel Dynamics, made four key points about the direction the Chinese steel industry is taking.  First, the industry is facing serious production restraints due to insufficient water, electricity, rail cars, port capacity, and domestic iron

ore/coking coal capacity. Second, the rate of capacity growth will slow somewhat, but will still be sizable by 2010—perhaps 360 million tonnes.  Third, Chinaís steel workforce will be an advantage for years to come, not because hourly wages are so low, but because they are well-schooled, young and dedicated to their jobs.  Fourth, the government will push much more mergers and acquisitions.  ìSome of the companies that seem certain to grow much bigger include BaoSteel, Anshan, Wuhan, Shogang and  Maanshan,î said Liu.  ìToday, these five companies account for about 60 million tonnes of steel production, or about 23% of Chinaís total.  In three years, their production may climb to 130 million tonnes or about 40-45% of the total for the country.î

Luncheon Speaker:  Martin Wolf, Chief Economics Commentator, Financial Times, United Kingdom

In discussing the hopes and risks for the world economy, Wolf noted that there is an extraordinary imbalance in the global economy presenting significant risk.

The three long-run, driving forces are:

1)    Productivity.  He says the ìnew economyî was grossly oversold in the short run, but may even be undersold for the long run, and the US productivity improvement was sustained during the slowdown.  This suggests the global productivity frontier is now moving outwards faster than between 1973 and 1995.

2)    Convergence.  The rest of the world is catching up.  Asiaís rise is the fourth big transformation in relative economic power since the industrial revolution.  He cited as the previous three: the early 19^th century and the rise of the United Kingdom; the late 19^th and early 20^th centuries and the rise of the USA and Germany, and the post-WW II Japanese miracle.

3)    Globalization.  Economic integration through the flow of goods, services, trade, capital and ideas is a prime engine of global economic growth.  "Despite difficulties, it is likely to continue," he said.

At the present time, however, the world is experiencing "the best recovery money can buy."  (Please see the table below.)   He described it as an "Anglosphere-led" recovery, with a strong additional boost from China, which is looking very much like the last cycle, with attendant risks.

The risks, or imbalances, are: if the dollar falls against the background of twin deficits.  If the fall is sharp, there could be a damaging combination of inflation and higher long-term interest rates in the USA and stronger deflationary pressures in the eurozone and Japan.  There are also oil price, security (war and terrorism) and protectionist risks.

At present, the Chinese boom is driving commodity demand and the weak dollar is raising prices in dollars.  Security fears are affecting the oil price.  Concerning possible terrorism threats, he posed the questions:  ìWhat will happen when the first nuclear device goes off in a container?  Where will globalization be then, and what then happens to convergence?

Whatís more, if the USA continues to accumulate net liabilities, in 8-9 years, they will be 100% of GDP, or $11 trillion.  This will put pressure on long-term rates and affect the sustainability of consumer demand.  He noted that China is a ìsuperchargerî for USA monetary policy, since it is in the same monetary area.  Also, the combination of a weak dollar with rapid growth in US demand and rapid accumulations of reserves is inflationary for Asia, especially China.

ìInflation is manageable in the USî, he said.  ìOil is too high priced and more likely to fall--unless the Saudis have a problem.  In China, commodity prices are not a worry.  A terrorist setting off a nuclear device in a container in one of the major ports is the most threatening. Protectionism is manageable.î

Wolfís conclusions:

• Prospects for long-run growth are good.
• The recovery is threatened by long-running imbalances that have not been resolved, during the slowdown.
• The recovery is, instead brought about by a massive policy ease in the USA, continued low levels of household saving and huge fiscal deficits.
• It is spread to Asia via competitive exchange rates, fast export growth and reserve accumulations.
• The Fed and US government cannot stimulate much more.
• US households cannot save less, or borrow more.
• We are close to the limits of Anglosphere policy action.
• There are also further risks out there in Chinese overheating, protection and terrorism.

He asked in closing:  "Is inflation the end game of all this?  How else does one obliterate excess debt?"

Panel VI:  Wall Street Darlings are Back!

Glenn R. Tilles, managing director for investment banking, Lehman Brothers, noted that ìcapital markets are open and ready to do business.î  He echoed the sentiment of most members of this panel—that Wall Street is again bullish on the steel industry.  Tilles noted that so far this year the USA steel industry has raised $9.5 billion in debt financing versus $7.7 billion in equity financing.

"Follow the equity dollars," Tilles recommended.  "Those are the ones powering growth and consolidation."  Steel companies outside of the United States have raised more equity financing than US firms, but the latter group was now gaining ground.  When questioned, however, if private equity sources were available to the industry, Tilles was more unenthusiastic.  "Private equity sources that like metal are few and far between," he commented.

Dieter Hoeppli, executive director of UBS Securities LLC, agreed that investors are once again taking notice of steel equities.  The consolidation and restructuring led by ISG, he noted, has resulted in price discipline, new labor contracts and the shedding of legacy costs—all of which are enhancing competitiveness.

ìIndustry inputs are constrained so supply is tight and demand is high,î Hoeppli said.  He forecast record earnings for the industry this year, and predicted that the steel sector would earn its cost of capital in 2004.  "A good balance sheet is the key to success," Hoeppli added.

Peter Hickson, managing director and basic materials strategist for UBS Investment Bank, London, pointed to East Europe as a region ready for rationalizations and mergers, and he forecast that the four major Russian steelmakers would be combined into two companies.  Hickson also cited Arcelorís partnership/alliance program as a potential model for other steel firms looking to rationalize.

James S. Tumulty, managing director of Morgan Joseph & Co., cautioned that investing in unsecured bonds was like getting swept away by romance novels.  The bankruptcy recovery rate for unsecured investors was virtually zero, and the default rate of the steel industry on unsecured loans was more than 80% over the past 15 years.  "It would take a hell of a paradigm shift to reverse that trend," he stated.

Tumulty added that the steel industry has pretty much been stood on its head since 2002.  ìTwo years ago there were lots of steel assets and steel talent and no capital,î he explained.  ìNow there are no talented steel executives that havenít been sucked up by ISG—thereís plenty of capital, but assets are scarce.î

Questioned about future consolidations, Tumulty predicted someone would buy Stelco, Canadaís largest steelmaker, which is now operating under court protection.  He added that the future was questionable for AK Steel and Wheeling-Pittsburgh Steel as stand-alone companies.

Panel VII:  Technology to The Rescue

Gianpietro Benedetti, chairman and CEO, Danieli & C. SpA, Italy, addressed the issues of markets, investment and technologies, and that steel is a "package" of energy and ore.  He described four types of investment: upstream investment (in iron ore mines, pelletizing, ships and ports); new plants for making semifinished steel; rationalization of existing plants, and new plants for developing markets.

He pointed to several innovative technologies that Danieli offers aimed at reducing annual investment costs per ton and production cash costs.  These included: a DRI module at about $160-190 per tonne of capacity  in investment; an ìintegratedî minimill with a 2 million tpy capacity at an investment of $300-360 per tonne, and an ìendlessî minimill able to produce 0.6-0.8 million tpy of long products at a $290-340 per tonne of capacity investment.

Karl Schwaha, executive vice president and board member, VAI, Austria, noted that the blast furnace will remain the "workhorse" of the steel industry and the key is to optimize this technology.  High raw material prices, nonetheless, make it a good time for steelmakers to consider two revolutionary processes that "are at the brink of industrialization."

These are Finex, described as an innovative reduction process using the off-gas of a Corex melter gasifier to convert fine ore to DRI.  The initial, ìsemi-commercialî plant is operated at POSCOís Pohang mill in South Korea and the steel company is considering scaling up to a unit that will make 1.5 million tonnes per year of hot metal.  Schwaha also focused on a second technology--its Eurostrip process—for the direct casting of flat-rolled steel—which has been jointly pioneered by Arcelor, ThyssenKrupp Stainless and VAI.

Dieter Rosenthal, member of the managing board, SMS Demag, Germany pointed to the companyís trademarked multi-purpose CONARC Plant-MPC for alternating between the production of carbon and stainless steel.  Meanwhile, SMS Demagís strip casting technology, trademarked as CSP is finding a niche mainly in the stainless steel sector—in particular at AST, Italy.  Carbon steel, direct strip casting, however, continues to hold the most potential. 

Richard L. Wechsler, president, Castrip _LLC, premiered an in-plant video of  the mill process which direct casts wide, thin gauge hot-rolled band from molten steel.  It provided a look inside Nucorís Crawfordsville plant, where the technology is located, and which is also the site of the worldís first thin-slab/hot-rolled band facility.  Castrip _LLC was formed as a joint venture between Nucor (45% ownership), BlueScope Steel (45%) and Mitsubishi Heavy Industries of Japan (10%).  In the past few months, management reports that the plant has been able to successfully cast 0.035î thick hot-rolled band on a reliable basis.  Finished product yield has climbed from about 35% a year ago to 84% at present.

Shohei Manabe, general manager, Iron Unit Division, Kobe Steel Ltd., Japan, described Kobe Steelís ITmk3 technology, also known in the USA as ìthe Mesabi Nugget process.î The technology produces a small pure iron nugget virtually equivalent to pig iron from iron ore fines

and pulverized coal.  The pilot plant appears to have demonstrated to its investment partners that the time has come to build the first commercial sized unit, which will likely be located at the Steel Dynamics Butler, IN plant or the former LTV Hoyt Lake property near Lake Superior.

####

If you enjoyed New York's Conference in June, you will love the Paris Program in December!

STEEL SUCCESS STRATEGIES EUROPE

December 1-3, 2004

Crisis or Crescendo

Will Steelmakers' Metallics Dance to the Same Song in 2005?

Le Grand Intercontinental Hotel

Paris, France

For registration information  —

Tel:  +44 (0) 207 827 9977    Fax: +44 (0) 207 827 5292

Email: enquiries@metalbulletin.com        Online: www.metalbulletin.com

Mark your calendar!

STEEL SUCCESS STRATEGIES XX

June 20-22, 2005

THE PLAZA HOTEL

NEW YORK CITY

Our preliminary theme next year is:

Steel's New Era: Illusions, Realities and Opportunities